British diplomat Sir Henry Marchmont travels on a transatlantic flight from London to New York, on his way to Washington, D.C. He is followed by a group of German spies, led by William Easter, who suspect that Sir Henry is carrying secret government documents. The German agents later learn that Sir Henry is merely a decoy, and Easter recognizes that fellow passenger John Grayson is the actual courier. Realizing that he has been discovered, Grayson slips a matchbook into the purse of socialite Nancy Partridge just moments before he is abducted by Easter and his men. Back in London, famed detective Sherlock Holmes and his companion, Dr. John Watson, learn from Mr. Ahrens of the British Home Office that Grayson was actually secret service agent Alfred Pettibone, and Holmes is asked to recover the vital secret documents. The detective soon deduces that Grayson photographed the documents, then placed the microfilm in an American matchbook folder. Arriving in Washington, Holmes and Watson are met by Bart Lang of the British embassy and Detective Lt. Grogan of the Washington police department, the officer in charge of the Grayson case. Grayson's murdered body is later delivered to Holmes's hotel room, and the detective deduces from inspecting it that the spies have not found the secret documents. After interviewing George, a train porter, Holmes quickly surmises that Nancy has the matchbook. Easter comes to a similar conclusion, so he arranges for his men to attend Nancy's engagement party. The spies abduct both Nancy and her fiancé, naval lieutenant Peter Merriam, then remove Nancy, hidden inside a rolled-up carpet, from her aunt's home. Without any other leads, Holmes examines the materials found with Grayson's body and deduces that Nancy's kidnappers work in an antique shop. He and Watson then probe Washington's antique shops, finally arriving at Stanley's Antiques, which Holmes correctly suspects is the spies's hideout. Inside, Richard Stanley, the owner, questions Nancy about the secret documents, of which she truthfully claims no knowledge. Pretending to be an eccentric collector, Holmes gains admittance into Stanley's office, whom he immediately recognizes as Heinrich Hinkle, an ex-secret agent for pre-war Germany, who now heads an international spy ring. Stanley recognizes Holmes as well, but is unaware that he is lighting Holmes's cigarette with the very matchbook that holds the microfilm. Stanley's men capture Holmes, but before the spy can have the detective and Nancy executed, Watson arrives with Peter and the police. Stanley manages to escape through a secret passageway, however, and heads straight for the office of Senator Henry Babcock, who he has learned from Holmes holds a stamped envelope given to him by Grayson during the train ride to Washington, which the detective has led the spy to believe contains the microfilm. Stanley walks straight into Holmes's trap, and the microfilm is safely recovered. Holmes then reminds Stanley that he had told him that the man who had the secret documents did not know he had it, as Stanley had been carrying the matchbook since his abduction of Nancy.
